Hard Costs vs. Soft Costs: Splitting Your Project Budget

Every renovation or build budget splits into two buckets.

Hard costs are the physical work: demo, foundation, framing, roof, mechanical systems, drywall, cabinets, flooring, landscaping. If a crew installs it, it's a hard cost.

Soft costs are what it takes to get the work done but leave nothing you can touch: plans and engineering, permits, inspections, builder's risk insurance, legal, appraisal, survey, taxes during the project, and loan fees.

A simple example

Example, round numbers. A small ground-up build budgets $400,000 in hard costs. Soft costs come to $70,000: $25,000 in plans and engineering, $15,000 in permits and fees, $10,000 in insurance and taxes, and $20,000 in financing costs. Total project cost before land: $470,000. Plan for only the $400,000 and you start the job $70,000 short.

How lenders look at it

Lenders size construction and rehab loans against total cost, often called loan to cost (LTC). What counts in that total varies. Some lenders fund certain soft costs. Others fund hard costs only and expect you to cover the rest.

Why it matters to you

Soft costs are where budgets quietly break. Ask your lender up front which costs it will finance so you know your true cash need. Carry a contingency line as well, often 5% to 10% of hard costs, for the surprises every job turns up.

At RSC Private Lending, Fix & Flip loans go up to 100% of rehab and 95% of total cost, and New Construction loans go up to 100% of construction and 90% of total cost, within each program's ARV and experience requirements. Send us your budget and scenario for a term sheet in 24 hours. Subject to underwriting.